Which of the following statements is correct?
A)The cash ratio measures a firm's ability to pay long-term debt with its available cash and marketable securities.
B)Holding extremely high levels of liquidity to guard against liquidity crises is an inappropriate goal for the firm.
C)The quick (or acid-test) ratio measures a firm's ability to pay off short-term obligations with long-term debt.
D)The current ratio is a more stringent measure of liquidity than the quick (or acid-test) ratio.

Question

Quizplus · Accepted Answer

Holding extremely high levels of liquidity can have a negative impact on a firm's profitability as it means that cash is not being utilized for investments or other purposes. It is important for a firm to maintain an appropriate level of liquidity to guard against liquidity crises, but excessively high levels are not desirable. The other statements are incorrect as they either describe the wrong ratio or are not true.

Which of the Following Statements Is Correct